Concept explainers
Theory of constraints, contribution margin, sensitivity analysis. Damon Furniture (DF) produces fiberglass doors in two processes: molding and finishing. DF is currently producing two models: Masoline and Aldernite. Production in the molding department is limited by the amount of materials available. Production in the finishing department is limited by the amount of trained labor available. The only variable costs are materials in the molding department and labor in the finishing department. Following are the requirements and limitations by model and department:
The following requirements refer only to the preceding data. There is no connection between the requirements.
- 1. If there were enough demand for either door, which door would DF produce? How many of these doors would it make and sell?
- 2. If DF sells three Masoline for each Aldernite, how many doors of each type would it produce and sell? What would be the total contribution margin?
- 3. If DF sells three Masoline for each Aldernite, how much would production and contribution margin increase if the molding department could buy 9,000 more pounds of materials for $3 per pound?
- 4. If DF sells three Masoline for each Aldernite, how much would production and contribution margin increase if the assembly department could get 780 more labor hours at $15 per hour?
Want to see the full answer?
Check out a sample textbook solutionChapter 11 Solutions
Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
- Kagle design engineers are in the process of developing a new green product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed 550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit-and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: 100 per direct labor hour Material usage rate: 20 per part ABC system: Labor usage: 15 per direct labor hour Material usage (direct materials): 20 per part Machining: 75 per machine hour Purchasing activity: 150 per purchase order Setup activity: 3,000 per setup hour Warranty activity: 500 per returned unit (usually requires extensive rework) Customer repair cost: 25 per repair hour (average) Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. Explain why the analysis differs from the unit-based analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to 10 per unit for Design A and 40 per unit for Design B? Assume that the environmental cost is borne by society. Now which is the better design?arrow_forwardLarsen, Inc., produces two types of electronic parts and has provided the following data: There are four activities: machining, setting up, testing, and purchasing. Required: 1. Calculate the activity consumption ratios for each product. 2. Calculate the consumption ratios for the plantwide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plantwide rate? Which product is undercosted? 3. What if the machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?arrow_forwardMariah Enterprises makes a variety of consumer electronic products. Its camera manufacturing plant is considering choosing between two different processes, named Alpha and Beta, which can be used to make two component parts A and B. To make the correct decision, the managers would like to compare the labor and multifactor productivity of process Alpha with that of process Beta. The value of process output for component A and B are $175 and $140 per unit, respectively. The corresponding overhead costs are $6,000 and $5,000, respectively. Process Alpha Process Beta Product A B C D Output (units) 50 60 30 80 Labor ($) $1,200 $1,400 $1,000 $2,000 Material ($) $2,500 $3,000 $1,400 $3,500 a. Which process, Alpha or Beta, is more productive? b. What conclusions can you draw from your analysis?arrow_forward
- Engineering LLC is facing a cost issues in their production department. The Production manager of Al Maha Engineering LLC wants to adopt standard costing in their company to tackle cost issues. He wants know the meaning of standard cost of a product. Which of the following statement is the meaning of standard cost of a product? a. The average unit cost of products produced during a particular period. b. The average unit cost of products produced in the previous period. c. The unit cost of products incurred at the start of a particular period. d. The planned unit cost of products produced during a particular period.arrow_forwardWhen faced with a limited availability of machine-hours,management should consider producing those products that:a. Have the highest contribution margin per unit.b. Have the highest contribution margin ratios.c. Require the fewest machine-hours to produce.d. Contribute the highest contribution margin permachine-hour.arrow_forwardKagle design engineers are in the process of developing a new “green” product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system:Variable conversion activity rate: $100 per direct labor hourMaterial usage rate: $20 per partABC system:Labor usage: $15 per direct labor hourMaterial usage (direct materials): $20 per partMachining: $75 per machine hourPurchasing activity: $150 per purchase orderSetup activity: $3,000 per setup hourWarranty…arrow_forward
- Theory of constraints, throughput margin, and relevant costs. Washington Industries manufactures electronic testing equipment. Washington also installs the equipment at customers’ sites and ensures that it functions smoothly. Additional information on the manufacturing and installation departments is as follows (capacities are expressed in terms of the number of units of electronic testing equipment): Washington manufactures only 250 units per year because the installation department has only enough capacity to install 250 units. The equipment sells for $55,000 per unit (installed) and has direct material costs of $30,000. All costs other than direct material costs are fixed. The following requirements refer only to the preceding data. There is no connection between the requirements.arrow_forwardBradford Watch Company manufactures luxury and sports watches both for male and female customers. The luxury watches are famous for the high-end design materials while the sports watches are popular for their utilities. The company uses a traditional costing system in assigning overhead costs to the products on the basis of direct labour hours. However, the Production Manager seeks to replace the existing system with the Activity-based Costing (ABC) system to keep control over costs and offer more competitive pricing. After reviewing the existing costing system and interviewing the company’s personnel in relevant departments, the accountant compiled a report highlighting resources and costs involved in manufacturing watches per month: 1. The following table lists out the overhead cost: Activity cost pool Overhead cost (£) Additional Notes Job-order set up 33,000 Procurement and placement 360,000 Installation of winding system 195,000 An auto winding system is fitted with every…arrow_forwardBradford Watch Company manufactures luxury and sports watches both for male and female customers. The luxury watches are famous for the high-end design materials while the sports watches are popular for their utilities. The company uses a traditional costing system in assigning overhead costs to the products on the basis of direct labour hours. However, the Production Manager seeks to replace the existing system with the Activity-based Costing (ABC) system to keep control over costs and offer more competitive pricing. After reviewing the existing costing system and interviewing the company’s personnel in relevant departments, the accountant compiled a report highlighting resources and costs involved in manufacturing watches per month: The following table lists out the overhead cost: Activity cost pool Overhead cost (£) Additional Notes Job-order set up 33,000 Procurement and placement 360,000 Installation of winding system 195,000 An auto winding…arrow_forward
- Bradford Watch Company manufactures luxury and sports watches both for male and female customers. The luxury watches are famous for the high-end design materials while the sports watches are popular for their utilities. The company uses a traditional costing system in assigning overhead costs to the products on the basis of direct labour hours. However, the Production Manager seeks to replace the existing system with the Activity-based Costing (ABC) system to keep control over costs and offer more competitive pricing. After reviewing the existing costing system and interviewing the company’s personnel in relevant departments, the accountant compiled a report highlighting resources and costs involved in manufacturing watches per month: The following table lists out the overhead cost: Activity cost pool Overhead cost (£) Additional Notes Job-order set up 33,000 Procurement and placement 360,000 Installation of winding system 195,000 An auto winding…arrow_forwardPlanet Fit, Inc., produces two basic types of weight-lifting equipment, Model 9 and Model 14. Pertinent data are as follows: LOADING... (Click the icon to view the data.) The weight-lifting craze suggests that Planet Fit can sell enough of either Model 9 or Model 14 to keep the plant operating at full capacity. Both products are processed through the same production departments. Read the requirements LOADING... . Before determining which products to produce, let's calculate the contribution margin per unit and the contribution margin per machine hour for each machine. (Reduce the fixed manufacturing overhead to the lowest possible ratio of machine hours in order to calculate the contribution margin per machine hour. Example: 8:4 would be 2:1. Enter the amounts to the nearest cent.) Model 9 Model 14 - = Contribution margin per unit ÷ = Contribution margin…arrow_forwardIn comparing the traditional system with the activity-based costing system, which of Ergaster’s models had higher unit product costs under the traditional system? Based on this problem:Ergaster Corporation manufactures a variety of products. In the past, Ergaster has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, Ergaster has decided to switch to an activity based costing system for manufacturing overhead costs using three activity cost pools. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for next year is as follows: (see image) 11. Under the activity-based costing system, what would be the selling price of one unit of Model #36?arrow_forward
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubEssentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning